The economy is working through a conflict scenario – Kommersant FM

Volatility has begun in global markets due to the conflict in the Middle East. Oil prices were the first to react: a barrel of the benchmark Brent rose by 5% on October 9, but not for long. The cost subsequently returned to $87 per barrel. Bloomberg explained the jump by threats to Iran: the Islamic republic has increased its exports of raw materials to a five-year high, and now may become a participant in the Israeli conflict. Tehran, however, denies that it has anything to do with the Hamas attacks.

It is noteworthy that similar dynamics were observed in the ruble exchange rate: the dollar first strengthened to 102 rubles, this is a record this year. But the auction closed at 99 rubles. All this looks like an emotional reaction from market participants, says Bloomberg Economics Russia economist Alexander Isakov:

“These are not some fundamental shifts. There is now a large lag between changes in oil prices and what is happening with the ruble. In fact, this connection has weakened greatly. On the other hand, the first fears have somewhat subsided. Now this does not look like something that could affect the balance of the oil market.

We do not see a threat to Iran’s production capacity or risks to the production infrastructure in the Middle East. Moreover, unlike in the 1970s, the balance of power between exporters in the region versus, for example, the oil industry in the US has changed quite a bit. In this sense, there is less likelihood of any embargoes or unilateral reductions in production.

At the same time, if we see a significant double-digit increase in oil prices, then, indeed, this should support the exchange rate of the Russian currency.

If the price increase is 20-30%, then we can expect it to strengthen proportionally at the rate of about 3% per 10% increase in the price of raw materials.”

Investors also showed interest in protective assets. Quotes for December gold contracts on the New York Stock Exchange immediately increased by 1.5%. The price per troy ounce was $1,875, which is $30 higher than on October 6.

However, strategically, the rise in precious metal prices does not look sustainable, says international financial consultant Isaac Becker:

“I don’t think this trend will be long-term. Perhaps the price of gold will rise for some time, and if nothing more serious happens, if a third party does not appear in the conflict between Hamas and Israel, then we will see a fading of this trend.

If this conflict grows and its scale increases, then it is likely that we will see gold that will approach $1.9 thousand and, perhaps, go higher. Now it’s difficult to talk about any trend.

This is purely a reaction to events.”

So far, the Israeli economy has suffered the greatest losses. On October 9, the shekel lost 3% against the dollar, and the main stock indices fell by 6.5%.

Some enterprises are revising the schedule; for example, it was decided to stop production at one of the largest gas fields, Tamar. Authorities explained that it was too close to the Gaza Strip and could be targeted by Hamas rockets.

Fuel from this field was exported to Egypt, where it was liquefied and sold to Europe. There are other Israeli goods, the supply of which is sensitive to world markets, argues Alexei Portansky, a professor at the Higher School of Economics:

“For now we can say that in any case, when a military conflict begins, trade suffers. This is completely understandable. If, as a result of hostilities, damage is caused to some enterprises that work for export, then the consequences, of course, will manifest themselves.

Additionally, this may be particularly sensitive in the pharmaceutical sector because Israel cannot be said to be a unique supplier in other industries.

So, regarding diamonds, there are India, South Africa, Russia, and finally, the Netherlands. Here, Israel is simply one of the players who is unlikely to dramatically change the situation in this market. The largest player in the fertilizer market is the Russian Federation; they are also produced in Europe and the USA. In this area, too, Israel does not dictate market conditions.”

Meanwhile, the parties have not yet curtailed hostilities. In contrast, Israeli Prime Minister Benjamin Netanyahu has vowed to turn Hamas-controlled cities into rubble.

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Ivan Yakunin